KUALA LUMPUR (June 21): Asia-Pacific issuers are battling inflation and rising borrowing costs.
In a statement on Tuesday, June 21, S&P Global Ratings said this comes amid record high debt and reduced funding.
The rating agency has forecast scenarios in which 16% to 25% of rated entities could face a risk of a decline in their credit quality in the context of rising inflation and rising funding costs.
In a commentary titled “APAC Corporates: Inflation, Rate Strains Set In,” the agency provided high-level analysis of the sectors, geographies and rating tiers in which issuers are most exposed to downgrades. .
S&P credit analyst Xavier Jean said widespread commodity inflation and rising funding costs are two of the biggest challenges to corporate credit quality in Asia-Pacific over the next six months.
S&P said Asian companies are no strangers to exogenous shocks such as volatile raw material costs, fluctuating funding costs and rapidly changing investor sentiment.
But those factors now coincide with more leveraged balance sheets in the region and a pick-up in capital spending in 2021 amid recovering profits, he said.
S&P said that given the reduced ratings margin, issuer-specific characteristics are likely to shape companies’ credit profiles more than broader macroeconomic or industry dynamics.
Meanwhile, S&P credit analyst Abhishek Dangra said issuer-specific initiatives to offset external stresses and restore financial headroom, whether with price increases, moderate spending or debt repayments , will be essential to avoid a large series of rating downgrades over the next 12 years. month.